The development of strategic orientations in a firm is often viewed to have significant performance implications (Kropp, Lindsay and Shoham, 2006; Lonial and Carter, 2015). While there is growing interest to examine strategic orientations, most studies have focused on the effects of a single orientation in isolation without considering their potential complementarity for a firm’s strategic outcomes (e.g., Calantone, Cavusgil and Zhao, 2002; Kirca, Jayachandran and Bearden, 2005; Rauch et al., 2009). Moreover, previous studies have also observed that a combination of orientations may enable firms to perform better compared to adhering to a single orientation alone (Atuahene-Gima and Ko, 2001; Deutscher et al., 2016; Hakala, 2011). Yet, there is lack of agreement on
1 Introduction 14
the relationships between multiple strategic orientations and their performance contributions (Hakala, 2011), and several approaches are currently being examined. For example, a number of studies have explored direct effects of EO, MO, and/or LO on firm performance, some modeling orientations with interactions with each other (Boso, Story and Cadogan, 2013; Deutscher et al., 2016) and others without interactions with each other (Hult, Hurley and Knight, 2004; Laukkanen et al., 2013), whereas other studies have examined indirect orientation effects mediated by other orientations (Dutta, Gupta and Chen, 2016; Nguyen, Barrett and Fletcher, 2006) or have viewed orientations as indicators of higher-order constructs (Hult, Ketchen and Arrfelt, 2007; Lonial and Carter, 2015). Most studies have integrated two strategic orientations; however, understanding the complex relationship and relative performance contribution of all EO, MO, and LO is far less prevalent and remains unclear (Hakala, 2011). Such an integrative approach to strategic orientations is the basis for increased insight about which orientations may be most important for enhancing firm performance. As shown in previous studies, these strategic orientations are closely related (Grinstein, 2008), and leaving some of them unaccounted may inhibit uncovering complete performance benefits from their potential complementarity, as well as producing more confident study relationships.
Furthermore, while empirical studies commonly report a positive relationship between EO, MO, and LO and business performance (Cano, Carrillat and Jaramillo, 2004; Ellis, 2006; Lumpkin and Dess, 2001; Nybakk, 2012; Rauch et al., 2009), the results of prior research are mixed with some studies demonstrating a negative (Arbaugh, Cox and Camp, 2009; Grewal and Tansuhaj, 2001; Matsuno, Mentzer and Özsomer, 2002) and a curvilinear relationship (Tang et al., 2008; Wales et al., 2013). As demonstrated in the meta-analyses, the strength of this relationship also varies significantly across studies (Ellis, 2006; Rosenbusch, Rauch and Bausch, 2013; Saeed, Yousafzai and Engelen, 2014). This indicates that country-specific, institutional, and other business environment conditions may shape a firm’s strategic behavior and impact performance. Contextual differences have been recognized as a major source of inconsistency and study-to-study variation in research results (Johns, 2006) and called for a closer examination.
This study sets out to respond to the abovementioned calls for an integrative approach to and contextualization of firm-level strategic orientations. The main objective is to increase understanding of the role of strategic orientations for firm performance in different environmental contexts. The study focuses on entrepreneurial, market, and learning orientations, as well as their various combinations and their relationship with firm performance. Moreover, the study addresses contextual embeddedness of strategic orientations and examines environmental conditions that may affect the relationship between strategic orientation(s) and firm performance as well as the different contexts in which it occurs at both a country and industry level. The main research question of this study is as follows:
When and under what conditions do strategic orientations individually and jointly relate to firm performance in different environmental contexts?
To analyze different aspects relevant to the main research question, five separate sub-questions are formulated that correspond to the publications included in the dissertation.
The first sub-question concerns separate individual and joint complementary effects of strategic orientations. In particular, the study seeks to identify the orientations, i.e., EO, MO, and/or LO, that represent the dominant explanation of variance when comparing their unique and shared effects upon firm performance, and to test complementary effects of these strategic orientations. Therefore, the first sub-question is as follows:
Sub-question 1: How do EO, MO, and LO individually and jointly (complementarily) contribute to explanation of variance in firm performance?
The following four sub-questions are related to the issue of contextualization of strategic orientations tapped from different aspects of country and industry environments. In particular, the contexts of economic crisis, institutional environment, developed and emerging markets, and organizational task environment are investigated.
These contexts provide opportunities and constraints for firms and may shape the effectiveness of firms’ strategic orientations.
Among the investigated strategic orientations, as the scope of this dissertation encompasses SMEs EO is scrutinized more closely in this study. It is commonly recognized that with growth in size, organizations tend to be less entrepreneurially-oriented (McMillan, Block and Narasimha, 1986). Moreover, extant research has demonstrated that SMEs are motivated to constantly seek opportunities in order to survive and prosper (Chen and Hambrick, 1995). They are likely to adopt a more entrepreneurial behavior in turbulent or hostile environments (Real, Roldán and Leal, 2014), which is encouraged by their strategic flexibility and proximity to markets.
The context of economic crisis is addressed in the second sub-question. Economic crisis presents substantial challenges and creates new opportunities for firms striving to manage the economic downturn and grow their businesses. Because firms are limited in resources, particularly during an economic crisis, understanding how to best utilize such resources and capabilities is an important consideration in the pursuit of enhanced performance. Moreover, firms’ ability to operate within economic instability and perhaps even derive benefits from it provides a basis for achieving longer-term viability.
Given the importance of a well-crafted strategy for crisis management, empirical studies are rarely addressing this issue (Bundy et al., 2017). This is apprehensible as economic crises are exogenous shocks that are not frequently encountered. During an economic crisis, industries and markets experience increased uncertainty and rapid environmental changes. These conditions inevitably influence firms’ decision-making processes, such as decisions on how to explore and exploit entrepreneurial opportunities and respond to market needs. Thus, a firm’s EO and MO may have particularly important roles during such economic downturns. EO and MO have also been emphasized to be complementary, an attribute that is meaningful to verify during a crisis. Thus, the aim is to gain a better understanding of performance effects of EO and MO, and their complementarity during economic crisis. Hence:
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Sub-question 2: How do complementary strategic orientations relate to firm performance under economic crisis?
The third sub-question concerns examining the institutional context at the national level.
Researchers have identified various institutions as important factors when investigating the prevalence and effectiveness of strategy across national contexts (Hoskisson et al., 2000). National-level institutions regulate access to critical resources that support business operations and determine the level of uncertainty in the surrounding environment (Li and Zahra, 2012); therefore, they may explain the differences in firms’
strategic behavior and performance outcomes across different countries. The effect of institutions seems particularly relevant for a firm’s EO as an organization’s exhibition of innovative, proactive, and risk-taking behaviors and the ability to derive benefits from them may be strongly influenced by a country’s formal and informal institutions (North, 1990). Empirical research related to this field has mostly focused on either cultural variables or the relationships between isolated elements of institutions.
However, in reality, “institutions tend to ‘hang together’ as coherent entities or gestalts”
(Fainshmidt et al., 2018, p. 308), and firms have to deal with all dimensions of the institutional environment. Therefore, the aim is to provide a comprehensive view on the impact of institutional diversity on the EO–performance relationship by adopting a more holistic theoretical foundation. Hence, the third sub-question is formulated as follows:
Sub-question 3: How do national-level institutions shape the EO–performance relationship?
In relation to the previous sub-question on EO across different institutional environments, the examination of EO in developed and emerging markets, which represents the distinctive institutional and cultural contexts, is addressed in the fourth sub-question. While studying the transition economies, the importance of institutions came to the forefront and was viewed to be far more than background conditions (Meyer and Peng, 2005; 2016). Compared to more mature economies, emerging markets are generally characterized by less developed institutional frameworks pertaining to laws and regulations, political environment, property rights protection, and often substitute deficiencies in the formal institutional infrastructure by relying on informal mechanisms (Hoskisson et al., 2000; Meyer and Peng, 2005). The unique characteristics associated with emerging markets can provide important boundary conditions for theories that have been developed in mature economies (Bruton et al., 2013). Like much of the empirical research, theoretical models of EO were primarily tested in developed countries, while research efforts in the emerging market contexts progressed at a slower pace (Wales, Gupta and Mousa, 2013). To provide a much needed comparative insight and more detailed examination of EO in developed versus emerging markets, this study investigates the role of separate EO dimensions for enhancing firm performance, which is affected by multiple industry characteristics.
Hence:
Sub-question 4: What are the differences in the EO–performance relationship in developed and emerging market contexts?
The fifth sub-question concerns organizational task environment, which addresses firms’ interactions with important market players such as customers, competitors, and other stakeholders (Rosenbusch, Rauch and Bausch, 2013). Among the strategic orientations investigated in this study, EO has been recognized as a performance–
variance-enhancing strategic orientation because exploratory activities and experimentation are generally more distant from a firm’s prior competences and entail more risks and uncertain outcomes (Wiklund and Shepherd, 2011). Hence, EO enhances chances for both success and failure, and its payoffs may markedly differ across market-specific conditions. A substantial amount of literature has explored an adjustment between firm’s EO and external environmental conditions (e.g., Boso, Story and Cadogan, 2013; Covin and Slevin, 1989; Lumpkin and Dess, 2001). Yet, for the hostility/munificence dimension of the environment, the research results are inconclusive with some studies suggesting that EO is positively related to firm performance in munificent environments (Kreiser and Davis, 2010), whereas others providing evidence for this relationship in hostile contexts (Covin and Slevin, 1989;
Martins and Rialp, 2013). While previous studies have predominantly involved a consideration of separate environmental elements, this study aims to unpack these competing views by simultaneously considering how performance outcomes of EO are affected by a combination of multiple environmental parameters.
Sub-question 5: How is the EO–performance relationship contingent upon different dimensions of the organizational task environment?